World Economic Forum wades into Jones Act debate

Friday, February 01, 2013

The World Economic Forum (WEF), as part of a report released last week on the benefits of reducing supply chain barriers, is criticizing maritime cabotage laws, particularly those in the United States and China.
The U.S. cabotage law, namely the Jones Act, requires that vessels transporting goods or passengers between two points in the United States or engaging in certain activities in U.S. waters must be U.S.-owned, U.S.-built, and U.S.-crewed.
“Though justified for decades as national security measures, many cabotage regulations, particularly those affecting in-country transfers of imports and exports shipped by water, are motivated largely by protectionist concerns for local industries and employment,” said the report, which was prepared with Boston-based consulting firm Bain & Co. and the World Bank.
“The United States Jones Act and China’s international relay regulations are examples of maritime cabotage that affect a significant share of global trade,” WEF said. “While some countries have taken small steps toward liberalization, a mutual relaxation by the U.S. and China of their regulations would set a global example for other nations to follow.”
To reform cabotage laws, it said "the wisest course will focus first on protectionist international relay restrictions, whose abolishment will bring economic and environmental benefits that clearly outweigh security concerns."
The report noted “the alternative to using international shipping services for relay in the United States is typically to move goods via land. Estimates suggest that more than 500,000 qualifying international containers moved over highway and rail in 2012.”
"If these containers were allowed to stay on the water and trans-ship on international liner services, the economic benefit to supply chain participants – shippers, carriers and consumers – could exceed $200 million. In addition, the potential reduction in road congestion and environmental impact would be significant: Trucks and rail are substantially less energy efficient than ocean vessels.”
The report said “In the European Union, cabotage was fully liberalized in 1998 among the EU15 and then in 2009 with the new member states.” WEF called this “a possible model for other nations. The European Commission has confirmed that EU countries can still restrict national connections, but urged countries to consider the substantial cost savings that result from exempting international relay from such restrictions.”
A report on the Jones Act as it related to trade with Puerto Rico is expected to be released by the U.S. Government Accountability Office early this year, and the Bloomberg news service recently wrote an editorial slamming the Jones Act.
James Henry, chairman of the American Maritime Partnership, a coalition that represents the domestic maritime industry, responded to the Bloomberg editorial, saying it contained "a boatload of errors and misrepresentations."
Repeal or modification of the Jones Act “would make America less secure economically and militarily. Repealing this law would immediately put Americans out of work and send their jobs to foreign seamen and companies that don't have to comply with U.S. employment, environmental, safety or security laws,” Henry said.
WEF contends that “Relaxing China’s international relay restrictions would also save logistics providers (and exporters) around $500 million to $700 million per annum from lower port charges and optimized shipping networks. Furthermore, inefficient relay solutions add five to 10 days to the transportation time and carry significant costs for cargo owners.”
WEF said transshipping 10 million TEUs through Chinese ports, instead of rerouting them, could save $500 million to $1 billion in inventory costs.
The report said “Several other nations have considered relaxing international relay regulations, particularly growth markets like Brazil, Indonesia and India, where efficient infrastructure is a key to the future development.
“In India, 50 percent to 70 percent of exports and imports are trans-shipped abroad. A September 2012 effort to relax relay rules hinted at progress, but this is supposed to affect only a single port,” the International Container Transshipment Terminal at Vallarpadam in Cochin on the West Coast of India, WEF explained. It added this is “hardly a systemic solution and one that illustrates the challenges of appeasing competing interests.”
WEF said “abolishing or relaxing cabotage regulations around the globe would reduce costs, but will require a gradual approach, particularly when it comes to the legitimate national security concerns that surround domestic transport." - Chris Dupin